Apple Inc.

- Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Valuation Date:
Company Name:
Share Price:
Basic Shares Outstanding:
Basic Equity Value:
Diluted Shares Outstanding:
Diluted Equity Value:
Less: Cash & Investments
Plus: Debt
Plus: Minority Interest
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:

1/29/2010
Apple Inc.
$192.06

Last Historical Year:

Debt Issue Date:
Share Units:

900,678
$172,984
920,526
$176,796
$35,395
$0
$0
$0
$0
$141,401

2009
2010
1000

Days in Year:
Debt Amount:
Tax Rate:

Options Calculations (in Thousands Except Exercise Price):

Name
Tranche A
Tranche B
Tranche C
Tranche D
Tranche E
Total

FY 2007

Historical
FY 2008

Number
34,375

Exercise
Price
$81.17

Dilution
19,847

19,847

FY 2009

FY 2010E

FY 2011E

Projections
FY 2012E

FY 2013E

EV / Revenue:
EV / EBIT:
EV / EBITDA:

5.8 x
30.4 x
28.4 x

3.8 x
16.0 x
15.1 x

3.3 x
11.4 x
10.7 x

2.6 x
9.1 x
8.6 x

2.3 x
7.8 x
7.3 x

2.0 x
7.0 x
6.6 x

1.9 x
6.4 x
6.1 x

Equity Value / FCF:

P / E:
P / BV:

37.3 x
48.9 x

20.8 x
28.3 x
7.9 x

17.1 x
21.2 x
5.6 x

13.5 x
16.6 x
4.1 x

12.1 x
14.1 x
3.1 x

10.9 x
12.2 x
2.4 x

10.1 x
11.1 x
2.0 x

Operating Assumptions

FY 2007

Historical
FY 2008

FY 2009

FY 2010E

FY 2011E

Projections
FY 2012E

FY 2013E

Revenue Growth %:
COGS % Revenue:
R&D % Revenue:
SG&A % Revenue:

27.2%
66.2%
2.4%
11.1%

52.5%
64.1%
2.0%
8.9%

14.4%
59.0%
1.9%
8.3%

25.0%
59.0%
1.9%
8.3%

17.0%
59.0%
1.9%
8.3%

11.0%
59.0%
1.9%
8.3%

9.0%
59.0%
1.9%
8.3%

Stock-Based Compensation % Revenue:

Depreciation & Amortization % Revenue:
Effective Cash Interest Rate:
Debt Interest Rate:
Effective Tax Rate:

1.0%
1.3%
5.3%
0.0%
30.2%

1.4%
1.3%
3.4%
0.0%
31.6%

1.7%
1.7%
1.4%
0.0%
31.8%

1.7%
1.7%
1.0%
9.0%
30.0%

1.7%
1.7%
1.0%
9.0%
30.0%

1.7%
1.7%
2.0%
9.0%
30.0%

1.7%
1.7%
2.0%
9.0%
30.0%

6.5%
23.3
2.1%

7.8%
28.2
1.8%

7.8%
28.2
1.8%
$40

7.8%
28.2
1.8%
$37

7.8%
28.2
1.8%
$28

7.8%
28.2
1.8%
$13

23.0%
82.6
102.9%
4.3%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

2.9%

2.7%

2.7%

2.7%

2.7%

2.7%

Accounts Receivable % Revenue:

Accounts Receivable Days:
Inventory % COGS:
Amortization of Intangibles:
Accounts Payable % COGS:
Accounts Payable Days:
Accrued Expenses % Operating Expenses:
Short-Term Deferred Revenue % Revenue:
Long-Term Deferred Revenue % Revenue:
CapEx % Revenue:

3.0%

Income Statement

Revenue:
Cost of Goods Sold:
Gross Profit:
Operating Expenses:

FY 2007

FY 2008

$24,578
$16,282
$8,296

$37,491
$24,049
$13,442

FY 2009
$42,905
$25,324
$17,581

FY 2010E
$53,631
$31,655
$21,976

FY 2011E
$62,749
$37,037
$25,712

FY 2012E
$69,651
$41,111
$28,540

FY 2013E
$75,919
$44,811
$31,109

Research & Development:

Selling, General & Administrative:
Total Operating Expenses:

$596
$2,724
$3,320

$759
$3,345
$4,103

$830
$3,566
$4,397

$1,038
$4,458
$5,496

$1,214
$5,216
$6,430

$1,348
$5,789
$7,137

$1,469
$6,311
$7,780

$327
$0
$242

$496
$0
$516

$734
$0
$710

$918
$40
$888

$1,073
$37
$1,038

$1,192
$28
$1,153

$1,299
$13
$1,256

Operating Income:
Interest Income:
Interest Expense:
Other Income & Expense:
Pre-Tax Income:
Income Tax Provision:

$4,407
$647
$0
($48)
$5,006
$1,511

$8,327
$653
$0
($33)
$8,947
$2,828

$11,740
$407
$0
($81)
$12,066
$3,831

$14,635
$424
($45)
$0
$15,014
$4,504

$17,133
$568
($90)
$0
$17,610
$5,283

$19,030
$1,443
($90)
$0
$20,383
$6,115

$20,761
$1,780
($90)
$0
$22,450
$6,735

Net Income:

$3,495

$6,119

$8,235

$10,510

$12,327

$14,268

$15,715

Earnings Per Share (EPS):

Diluted Shares Outstanding:

$3.93
889,292

$6.78
902,139

$9.08
907,005

$4,649
$4,976
$4,735

$8,843
$9,339
$8,505
$24.17

Depreciation & Amortization of PP&E:

Amortization of Intangibles:
Stock-Based Compensation:

EBIT:
EBITDA:
Levered Free Cash Flow:
Book Value Per Share (BV):

$12,450
$13,184
$10,311
$34.56

$11.59
907,005
$15,523
$16,480
$13,061
$47.17

$13.59
907,005
$18,171
$19,282
$14,618
$61.94

$15.73
907,005
$20,183
$21,403
$16,158
$78.98

$17.33
907,005
$22,017
$23,329
$17,507
$97.70

Balance Sheet
FY 2008

FY 2009

FY 2010E

FY 2011E

FY 2012E

FY 2013E

Assets:
Current Assets:
Cash & Cash-Equivalents:
Short-Term Securities:
Accounts Receivable:
Inventory:
Deferred Tax Assets:

$11,875
$10,236
$2,422
$509
$1,044

$6,559
$26,282
$3,361
$455
$4

$20,620
$26,282
$4,201
$569
$4

$35,238
$26,282
$4,915
$665
$4

$51,396
$26,282
$5,456
$739
$4

$68,903
$26,282
$5,947
$805
$4

Other Current Assets:

Total Current Assets:

$3,920
$30,006

$3,140
$39,801

$3,140
$54,816

$3,140
$70,245

$3,140
$87,017

$3,140
$105,082

Long-Term Assets:
Long-Term Securities:
Plants, Property & Equipment:
Goodwill:
Other Intangible Assets:
Other Assets:
Total Assets:

$2,379
$2,455
$207
$285
$839
$36,171

$2,554
$2,839
$207
$354
$2,011
$47,766

$2,554
$3,352
$207
$314
$2,011
$63,253

$2,554
$3,951
$207
$277
$2,011
$79,245

$2,554
$4,617
$207
$249
$2,011
$96,654

$2,554
$5,342
$207
$236
$2,011
$115,432

Liabilities & Shareholders' Equity:

Current Liabilities:
Accounts Payable:
Accrued Expenses:
Deferred Revenue:
Total Current Liabilities:

$5,520
$4,224
$1,617
$11,361

$5,601
$3,852
$2,053
$11,506

$7,001
$4,815
$2,566
$14,383

$8,191
$5,634
$3,003
$16,828

$9,093
$6,253
$3,333
$18,679

$9,911
$6,816
$3,633
$20,360

Long-Term Liabilities:
Deferred Revenue:
Long-Term Debt:
Other Long-Term Liabilities:
Total Liabilities:

$768
$0
$1,745
$13,874

$853
$0
$3,502
$15,861

$1,066
$1,000
$3,502
$19,951

$1,248
$1,000
$3,502
$22,577

$1,385
$1,000
$3,502
$24,565

$1,509
$1,000
$3,502
$26,371

Shareholders' Equity:
Common Stock:
Additional Paid-In Capital:
Treasury Stock:
Retained Earnings:
Accumulated Other Comprehensive Income:
Total Shareholders' Equity:

$7,177
$0
$0
$15,129
($9)
$22,297

$7,177
$1,185
$0
$23,364
$179
$31,905

$7,177
$2,073
$0
$33,874
$179
$43,302

$7,177
$3,111
$0
$46,201
$179
$56,668

$7,177
$4,263
$0
$60,470
$179
$72,089

$7,177
$5,520
$0
$76,185
$179
$89,061

Total Liabilities & SE:

$36,171

$47,766

$63,253

$79,245

$96,654

$115,432

BALANCE CHECK:

$0.000

$0.000

$0.000

$0.000

$0.000

$0.000

Cash Flow Statement

FY 2007

FY 2008

FY 2009

FY 2010E

FY 2011E

FY 2012E

FY 2013E

$3,495
$327
$0
$242
$73
$12

$6,119
$496
$0
$516
$398
$22

$8,235
$734
$0
$710
$1,040
$26

$10,510
$918
$40
$888
$0
$0

$12,327
$1,073
$37
$1,038
$0
$0

$14,268
$1,192
$28
$1,153
$0
$0

$15,715
$1,299
$13
$1,256
$0
$0

($385)
($76)
($1,279)
$285
$1,494
$566
$716
$5,470

($785)
($163)
($274)
$289
$596
$718
$1,664
$9,596

($939)
$54
$780
($1,172)
$81
$521
$1,385
$11,455

($840)
($114)
$0
$0
$1,400
$727
$963
$14,491

($714)
($97)
$0
$0
$1,190
$618
$819
$16,292

($541)
($73)
$0
$0
$901
$468
$620
$18,015

($491)
($66)
$0
$0
$818
$425
$563
$19,532

($11,719) ($22,965)
$9,424 $16,243
($17)
($38)
($735) ($1,091)
($251)
($108)
$49
($230)
($3,249) ($8,189)

($46,724)
$30,678
($101)
($1,144)
($69)
($74)
($17,434)

$0
$0
$0
($1,430)
$0
$0
($1,430)

$0
$0
$0
($1,673)
$0
$0
($1,673)

$0
$0
$0
($1,857)
$0
$0
($1,857)

$0
$0
$0
($2,024)
$0
$0
($2,024)

Operating Activities:
Net Income:
Depreciation & Amortization of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:
Deferred Income Tax Expense:
Loss on PP&E:
Changes in Operating Assets & Liabilities:
Accounts Receivable:
Inventory:
Other Current Assets:
Other Assets:
Accounts Payable:
Deferred Revenue:
Other Liabilities:
Cash Flow from Operations:
Investing Activities:
Purchases of Securities:
Proceeds from Maturities & Sales:
Purchases of LT Investments:
Capital Expenditures:
Acquisition of Intangibles:
Other:
Cash Flow from Investing:
Financing Activities:
Proceeds from Common Stock:
Common Stock Repurchased:
Dividends Issued:

$365
$0
$0

$483
$0
$0

$475
$0
$0

$0
$0
$0

$0
$0
$0

$0
$0
$0

$0
$0
$0

Tax Benefits from Stock-Based Comp:

Raise / (Pay Off) Long-Term Debt
Cash Used for Equity Awards:
Cash Flow from Financing:
Increase / Decrease in Cash:
Cash & Cash Equivalents:

$377
$0
($3)
$739
$2,960
$9,352

$757
$0
($124)
$1,116
$2,523
$11,875

$270
$0
($82)
$663

$0
$1,000
$0
$1,000

$0
$0
$0
$0

$0
$0
$0
$0

$0
$0
$0
$0

($5,316)
$6,559

$14,061
$20,620

$14,618
$35,238

$16,158
$51,396

$17,507
$68,903

360
$1,000
30%

FY 2014E
1.7 x
6.0 x
5.7 x
9.1 x
9.8 x
1.6 x

FY 2014E
7.0%
59.0%
1.9%
8.3%
1.7%
1.7%
3.0%
9.0%
30.0%
7.8%
28.2
1.8%
$10
22.1%
79.6
87.6%
4.8%
2.0%
2.7%

FY 2014E
$81,234
$47,948
$33,286

$1,572
$6,752
$8,324
$1,390
$10
$1,344
$22,218
$3,223
($90)
$0
$25,351
$7,605
$17,746
$19.56
907,005
$23,562
$24,962
$19,382
$118.76

FY 2014E

$88,285
$26,282
$6,364
$861
$4

$3,140
$124,936

$2,554
$6,118
$207
$226
$2,011
$136,052

$10,605
$7,293
$3,887
$21,785

$1,615
$1,000
$3,502
$27,902

$7,177
$6,864
$0
$93,930
$179
$108,151
$136,052

$0.000

FY 2014E
$17,746
$1,390
$10
$1,344
$0
$0
($416)
($56)
$0
$0
$694
$360
$477
$21,548

$0
$0
$0
($2,166)
$0
$0
($2,166)

$0
$0
$0

$0
$0
$0
$0
$19,382
$88,285

Valuation Summary - Apple Inc.

($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Apple Inc.

Methodology Name
Public Company Comparables:
2009 EV / Revenue:
2010E EV / Revenue:
2009 EV / EBITDA:
2010E EV / EBITDA:
2009 P / E:
2010E P / E:
Precedent Transactions:
Trailing EV / Revenue:
Forward EV / Revenue:
Trailing EV / EBITDA:
Forward EV / EBITDA:
Discounted Cash Flow Analysis:
11-15% Discount Rate, 5-9x Terminal Multiple:

Apple Inc. - Range of Valuation Multiples / Premiums

Minimum
Multiple

25th
Pecentile
Multiple

Median
Multiple

75th
Pecentile
Multiple

0.3 x
0.3 x
4.4 x
3.7 x
15.0 x
10.9 x

0.5 x
0.5 x
7.3 x
5.1 x
16.1 x
12.2 x

1.1 x
1.0 x
7.6 x
5.5 x
19.7 x
16.3 x

2.8 x
2.3 x
10.6 x
6.8 x
29.1 x
16.6 x

0.4 x
0.4 x
8.7 x
9.6 x

1.9 x
2.1 x
11.5 x
13.4 x

2.7 x
2.7 x
14.4 x
19.1 x

6.0 x
5.0 x
17.3 x
23.9 x

on Multiples / Premiums

Maximum
Multiple

Apple Inc. - Implied Per Share Value Range

Applicable
Apple Inc.
Figure

Minimum
Multiple

25th
Pecentile
Multiple

Median
Multiple

75th
Pecentile
Multiple

Maximum
Multiple

3.1 x
2.6 x
11.5 x
8.4 x
47.2 x
44.6 x

$42,905 $
$53,631
$13,184
$16,480
$9.08
$11.59

52.12 $
54.32
101.49
103.84
136.10
126.68

59.64 $
66.62
143.02
129.06
145.77
140.94

89.08 $
96.83
146.90
137.54
179.19
188.68

170.37 $
173.80
190.08
160.94
264.11
192.55

181.29
189.43
203.41
187.95
428.24
516.50

8.3 x
7.5 x
39.7 x
32.8 x

$42,905 $
$53,631
$13,184
$16,480

57.41 $
63.66
162.40
211.19

129.08 $
163.31
202.99
277.70

165.82 $
198.04
244.29
379.76

319.62 $
328.66
285.53
465.76

424.32
472.85
606.40
625.62

163.88 $

182.19 $

201.98 $

223.36 $

246.46

Balance Sheet Adjustment:

$35,395

Public Company Comparables

2009 EV / Revenue:
2010E EV / Revenue:
2009 EV / EBITDA:
2010E EV / EBITDA:
2009 P / E:
2010E P / E:

Precedent Transactions
Trailing EV / Revenue:
Forward EV / Revenue:
Trailing EV / EBITDA:
Forward EV / EBITDA:

Discounted Cash Flow Analysis

11-15% Discount Rate, 5-9x Terminal Multiple:
$0.00

11-15% Discount Rate, 5-9x Terminal Multiple:

$100.00

$200.00

$300.00

Min.
25th
$
163.88 $
182.19

Forward EV / EBITDA:
Trailing EV / EBITDA:
Forward EV / Revenue:
Trailing EV / Revenue:

$
$
$
$

211.19
162.40
63.66
57.41

$
$
$
$

277.70
202.99
163.31
129.08

2010E P / E:
2009 P / E:
2010E EV / EBITDA:
2009 EV / EBITDA:
2010E EV / Revenue:
2009 EV / Revenue:

$
$
$
$
$
$

126.68
136.10
103.84
101.49
54.32
52.12

$
$
$
$
$
$

140.94
145.77
129.06
143.02
66.62
59.64

Min to 25th
25th to Median
Median to 75th
75th to Max

$300.00

$400.00

$500.00

$600.00

$700.00

Median
75th
Max
Min Point
25 Point
Med Point
75 Point
$
201.98 $
223.36 $
246.46 $
163.88 $
18.31 $
19.79 $
21.38
$
$
$
$

379.76
244.29
198.04
165.82

$
$
$
$

465.76
285.53
328.66
319.62

$
$
$
$

625.62
606.40
472.85
424.32

$
$
$
$

211.19
162.40
63.66
57.41

$
$
$
$

66.51
40.59
99.65
71.67

$
$
$
$

102.06
41.30
34.73
36.74

$
$
$
$

86.00
41.24
130.62
153.80

$
$
$
$
$
$

188.68
179.19
137.54
146.90
96.83
89.08

$
$
$
$
$
$

192.55
264.11
160.94
190.08
173.80
170.37

$
$
$
$
$
$

516.50
428.24
187.95
203.41
189.43
181.29

$
$
$
$
$
$

126.68
136.10
103.84
101.49
54.32
52.12

$
$
$
$
$
$

14.26
9.67
25.23
41.53
12.31
7.53

$
$
$
$
$
$

47.74
33.43
8.47
3.87
30.21
29.44

$
$
$
$
$
$

3.87
84.92
23.41
43.18
76.97
81.29

Max Point
$
23.10
$
$
$
$

159.85
320.86
144.19
104.70

$
$
$
$
$
$

323.95
164.13
27.01
13.33
15.63
10.93

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Operating Statistics
Company Name
Hewlett-Packard Company
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Capitalization
Share
Equity
Enterprise
Revenue
EBITDA
Price
Value
Value
2009
2010E
2009
$ 47.07 $ 114,779 $ 124,430 $ 114,552 $ 124,179 $ 16,433
12.90
25,241
15,080
51,430
55,380
3,426
22.47
131,739
106,671
34,807
41,163
10,076
19.40
107,224
92,786
32,784
39,941
12,708
6.15
14,239
10,665
23,457
22,056
926

Maximum
75th Percentile
Median
25th Percentile
Minimum

$ 47.07 $ 131,739 $ 124,430 $ 114,552 $ 124,179 $ 16,433

22.47
114,779
106,671
51,430
55,380
12,708
$ 19.40 $ 107,224 $ 92,786 $ 34,807 $ 41,163 $ 10,076
12.90
25,241
15,080
32,784
39,941
3,426
6.15
14,239
10,665
23,457
22,056
926

Apple Inc.

$ 192.06 $ 176,796 $ 141,401

$42,905 $ 53,631

$13,184

Valuation Statistics
Company Name
Hewlett-Packard Company
Dell Inc.
Cisco Systems, Inc.
Intel Corporation
Motorola, Inc.

Capitalization
Share
Equity
Enterprise
Price
Value
Value
$ 47.07 $ 114,779 $ 124,430
12.90
25,241
15,080
22.47
131,739
106,671
19.40
107,224
92,786
6.15
14,239
10,665

Enterprise Value /
Revenue
2009
2010E
1.1 x
1.0 x
0.3 x
0.3 x
3.1 x
2.6 x
2.8 x
2.3 x
0.5 x
0.5 x

Enterprise Value /
EBITDA
2009
7.6 x
4.4 x
10.6 x
7.3 x
11.5 x

Maximum
75th Percentile
Median
25th Percentile
Minimum

$ 47.07 $ 131,739 $ 124,430

22.47
114,779
106,671
$ 19.40 $ 107,224 $ 92,786
12.90
25,241
15,080
6.15
14,239
10,665

3.1 x
2.8 x
1.1 x
0.5 x
0.3 x

2.6 x
2.3 x
1.0 x
0.5 x
0.3 x

11.5 x
10.6 x
7.6 x
7.3 x
4.4 x

Apple Inc.

$ 192.06 $ 176,796 $ 141,401

3.3 x

2.6 x

10.7 x

EBITDA
EPS
2010E
2009
2010E
$ 18,186 $
3.14 $
3.87
4,129
0.79
1.18
12,774
0.97
1.38
18,332
0.41
1.17
1,927
(1.70)
0.14
$ 18,332 $
18,186
$ 12,774 $
4,129
1,927
$16,480
Enterprise Value /
EBITDA
2010E
6.8 x
3.7 x
8.4 x
5.1 x
5.5 x

Projected
Revenue
Growth
8.4%
7.7%
18.3%
21.8%
(6.0%)

EBITDA Margin
2009
2010E
14.3%
14.6%
6.7%
7.5%
28.9%
31.0%
38.8%
45.9%
3.9%
8.7%

3.14 $
0.97
0.79 $
0.41
(1.70)

3.87
1.38
1.18
1.17
0.14

21.8%
18.3%
8.4%
7.7%
(6.0%)

38.8%
28.9%
14.3%
6.7%
3.9%

45.9%
31.0%
14.6%
8.7%
7.5%

$9.08 $

11.59

25.0%

30.7%

30.7%

P / E Multiple
2009
2010E
15.0 x
12.2 x
16.4 x
10.9 x
23.1 x
16.3 x
47.2 x
16.6 x
NM
44.6 x

8.4 x
6.8 x
5.5 x
5.1 x
3.7 x

47.2 x
29.1 x
19.7 x
16.1 x
15.0 x

44.6 x
16.6 x
16.3 x
12.2 x
10.9 x

8.6 x

21.2 x

16.6 x

Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Apple Inc. - Comparable M&A Transactions

Acquirer Name
Hewlett-Packard Company
Cisco Systems, Inc.
Emerson Electric Co.
EMC Corporation
Oracle Corporation
Brocade Communication Systems, Inc.

Target Name
3Com
Starent Networks
Avocent
Data Domain
Sun Microsystems
Foundry Networks
Maximum
75th Percentile
Median
25th Percentile
Minimum

Equity
Enterprise
Date
Value
Value
11/11/2009 $ 3,180 $ 2,714
10/13/2009
2,777
2,386
10/6/2009
1,114
1,147
7/8/2009
2,362
2,085
4/20/2009
7,075
5,392
7/21/2008
2,899
2,063
$
$

7,075 $
3,110
2,838 $
2,466
1,114

5,392
2,632
2,235
2,068
1,147

Operating Metrics
Trailing
Forward
Revenue
Revenue
$ 1,265 $ 1,223
288
320
611
542
301
375
13,256
12,462
621
633

Trailing
EBITDA
$
152
154
105
53
623
156

$ 13,256 $ 12,462 $
1,104
1,075
$
616 $
587 $
378
417
288
320

Forward
EBITDA
$
110
110
93
64
559
125

623 $
155
153 $
117
53

559
121
110
97
64

EV /
Trailing
Revenue
2.1 x
8.3 x
1.9 x
6.9 x
0.4 x
3.3 x
8.3 x
6.0 x
2.7 x
1.9 x
0.4 x

Valuation Multiples
EV /
EV /
Forward
Trailing
Revenue
EBITDA
2.2 x
17.8 x
7.5 x
15.5 x
2.1 x
10.9 x
5.6 x
39.7 x
0.4 x
8.7 x
3.3 x
13.2 x
7.5 x
5.0 x
2.7 x
2.1 x
0.4 x

39.7 x
17.3 x
14.4 x
11.5 x
8.7 x

EV /
Forward
EBITDA
24.6 x
21.6 x
12.3 x
32.8 x
9.6 x
16.5 x
32.8 x
23.9 x
19.1 x
13.4 x
9.6 x

Discounted Cash Flow Analysis - Apple Inc.

($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Apple Inc. - Cash Flow Projections
FY 2010E FY 2011E FY 2012E FY 2013E FY 2014E
Revenue:
EBITDA:
Operating Income:

$53,631 $ 62,749 $ 69,651 $ 75,919 $ 81,234

$16,480 $ 19,282 $ 21,403 $ 23,329 $ 24,962
$14,635 $ 17,133 $ 19,030 $ 20,761 $ 22,218

Less: Taxes

($4,391)

Plus: Depreciation
Plus: Amortization
Plus: Stock-Based Compensation

$918
$40
$888

($5,140)

($5,709)

($6,228)

($6,665)

$1,073
$37
$1,038

$1,192
$28
$1,153

$1,299
$13
$1,256

$1,390
$10
$1,344

$1,815
($1,673)

$1,374
($1,857)

$1,248
($2,024)

$1,058
($2,166)

Less: Increase in Working Capital:

Less: Capital Expenditures

$2,136
($1,430)

Unlevered Free Cash Flow

Present Value of Free Cash Flow

$12,795 $ 14,284 $ 15,211 $ 16,324 $ 17,189

$12,064 $ 11,971 $ 11,332 $ 10,811 $ 10,119

Normal Discount Period:

Mid-Year Discount:
Free Cash Flow Growth Rate:

1.000
0.500

2.000
1.500

3.000
2.500

4.000
3.500

5.000
4.500

11.6%

6.5%

7.3%

5.3%

Terminal Growth
Rate

Apple Inc. - Net Present Value Sensitivity - Terminal Growth Rates

Discount Rate
$ 204.96
10.0%
11.0%
12.0%
13.0%
14.0%
0.0% $ 220.90 $ 214.27 $ 207.97 $ 201.98 $ 196.28
1.0% $ 220.90 $ 214.27 $ 207.97 $ 201.98 $ 196.28
2.0% $ 220.90 $ 214.27 $ 207.97 $ 201.98 $ 196.28
3.0% $ 220.90 $ 214.27 $ 207.97 $ 201.98 $ 196.28
4.0% $ 220.90 $ 214.27 $ 207.97 $ 201.98 $ 196.28
5.0% $ 220.90 $ 214.27 $ 207.97 $ 201.98 $ 196.28

$
$
$
$
$
$

15.0%
190.85
190.85
190.85
190.85
190.85
190.85

$
$
$
$
$
$

16.0%
185.68
185.68
185.68
185.68
185.68
185.68

Terminal EBITDA
Multiple

Apple Inc. - Net Present Value Sensitivity - Terminal EBITDA Multiples

Discount Rate
$ 204.96
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
4.0 x $ 170.39 $ 165.99 $ 161.81 $ 157.83 $ 154.03 $ 150.40 $ 146.95
5.0 x $ 187.23 $ 182.09 $ 177.20 $ 172.54 $ 168.11 $ 163.88 $ 159.86
6.0 x $ 204.06 $ 198.18 $ 192.59 $ 187.26 $ 182.19 $ 177.37 $ 172.77

Terminal EBITDA
Multiple

7.0 x $ 220.90 $ 214.27 $ 207.97 $ 201.98 $ 196.28 $ 190.85 $ 185.68

8.0 x $ 237.74 $ 230.37 $ 223.36 $ 216.70 $ 210.36 $ 204.33 $ 198.59
9.0 x $ 254.58 $ 246.46 $ 238.75 $ 231.42 $ 224.44 $ 217.81 $ 211.50

Apple Inc. - DCF Assumptions & Output

Use Multiples Method?

Discount Rate:

Yes
12.5%

Terminal EBITDA Multiple:

Terminal Growth Rate:
Terminal Value:

7.0 x
3.0%
$ 174,733

PV of Terminal Value:
Sum of PV of Cash Flows:
Enterprise Value:

$96,980
$56,296
$153,276

Terminal Value % EV:

63.3%

Enterprise Value:
Balance Sheet Adjustment:
Implied Equity Value:

$153,276
$35,395
$188,671

Implied Price Per Share:

$ 204.96

WACC Analysis - Apple Inc.

($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Risk-Free Rate:
Equity Risk Premium:
Interest Rate on Debt:

4.38%
7.00%
9.00%

Comparable Companies - Unlevered Beta Calculation

Levered
Equity
Name
Beta
Debt
Value
Hewlett-Packard Company
1.04 $ 15,830 $ 114,779
Dell Inc.
1.31
3,793
25,241
Cisco Systems, Inc.
1.23
10,273
131,739
Intel Corporation
1.17
2,224
107,224
Motorola, Inc.
1.87
3,925
14,239
Median

1.23

Apple Inc.

1.57

Apple Inc. - Levered Beta & WACC Calculation

Unlevered
Beta
Apple Inc.
Cost of Equity Based on Comparables:
Cost of Equity Based on Historical Beta:

1.16

Tax Rate
20.0%
27.0%
22.0%
33.0%
34.0%

Unlevered
Beta
0.94
1.18
1.16
1.15
1.58
1.16

Debt

Equity
Value

$0 $ 176,796

Tax Rate
30%

Levered
Beta
1.16
12.50%
15.37%

WACC = Cost of Equity * % Equity + Cost of Debt * % Debt * (1 - Tax Rate) + Cost of Preferred Stock * % Preferred Stock
WACC

12.50%

referred Stock * % Preferred Stock

Merger Model - Apple Inc. and Research in Motion Limited

($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Per Share Purchase Price:
% Cash:
% Debt:
% Stock:
Foregone Cash Interest Rate:

$75.00
33.3%
33.3%
33.3%
1.0%

Revenue Synergy %:
Cost Synergies % OpEx:

10.0%
10.0%

Equity Purchase Price:

Cash Used:
Debt Issued:
New Shares Issued:
Debt Interest Rate:
Revenue Synergy COGS %:

Goodwill Creation & Balance Sheet Adjustments

Goodwill Calculation:
Equity Purchase Price:
Less: Seller Book Value:
Plus: Write-Off of Existing Goodwill:
Total Allocable Purchase Premium:

$43,049
($6,987)
$147
$36,209

Less: Write-Up of PP&E:

Less: Write-Up of Intangibles:
Less: Write-Down of DTL:
Plus: New Deferred Tax Liability:
Total Goodwill Created:

($174)
($7,242)
($43)
$2,225
$30,975

Fixed Asset Write-Up:

PP&E Write-Up %:
PP&E Write-Up Amount:
Depreciation Period (Years):
Intangible Asset Write-Up:
Purchase Price to Allocate:
% Allocated to Intangibles:
Intangibles Write-Up Amount:
Amortization Period (Years):
New Deferred Tax Liability:

Buyer - Financial Profile

Seller - Financial Profile

Buyer Name:
Share Price:
Diluted Shares Outstanding:
Diluted Equity Value:
Enterprise Value:
Tax Rate:

Apple Inc.
$192.06
920,526
$176,796
$141,401
30%

Buyer - Income Statement

Revenue:
Cost of Goods Sold:
Gross Profit:
Operating Expenses:

Seller Name:
Share Price:
Diluted Shares Outstanding:
Diluted Equity Value:
Enterprise Value:
Tax Rate:
Seller - Income Statement

FY 2010E
$53,631
$31,655
$21,976

FY 2011E
$62,749
$37,037
$25,712

$5,496

$6,430

Revenue:
Cost of Goods Sold:
Gross Profit:
Operating Expenses:

Depreciation of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:

$918
$40
$888

$1,073
$37
$1,038

Depreciation of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:

Operating Income:
Interest Income / (Expense):
Pre-Tax Income:
Income Tax Provision:

$14,635
$379
$15,014
$4,504

$17,133
$478
$17,610
$5,283

Operating Income:
Interest Income / (Expense):
Pre-Tax Income:
Income Tax Provision:

Net Income:

$10,510

$12,327

Net Income:

Earnings Per Share (EPS):

Diluted Shares Outstanding:

$11.59
907,005

$13.59
907,005

Combined Income Statement

FY 2010E
$70,862
$1,723
$41,410
$862
$30,313

FY 2011E
$83,617
$2,087
$48,905
$1,043
$35,755

$8,193
$270

$9,689
$326

Depreciation of PP&E:
Depr. of PP&E Write-Up:
Amortization of Intangibles:
Amort. of New Intangibles:
Stock-Based Compensation:

$1,348
$22
$399
$1,448
$939

$1,637
$22
$470
$1,448
$1,101

Operating Income:
Interest Income / (Expense):
Foregone Interest on Cash:
Interest Paid on New Debt:
Pre-Tax Income:
Income Tax Provision:

$18,233
$404
($143)
($1,291)
$17,203
$5,161

$21,713
$510
($143)
($1,291)
$20,789
$6,237

Net Income:

$12,042

$14,552

Combined Revenue:
Revenue Synergies:
Cost of Goods Sold:
Revenue Synergy COGS:
Gross Profit:
Operating Expenses:
OpEx Synergies:

Earnings Per Share (EPS):

Diluted Shares Outstanding:
Accretion / Dilution:
Accretion / Dilution %:

$12.27
981,719

$14.82
981,719

$0.68
5.9%

$1.23
9.1%

Earnings Per Share (EPS):

Diluted Shares Outstanding:

Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:

Per Share Purchase Price

Expense Synergies % Seller OpEx:

Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:

Per Share Purchase Price

Revenue Synergies % Seller Revenue:

uity Purchase Price:

$43,049
$14,350
$14,350
74,714
9.0%

ew Shares Issued:
ebt Interest Rate:

venue Synergy COGS %:

50.0%

xed Asset Write-Up:

&E Write-Up %:
&E Write-Up Amount:
epreciation Period (Years):

10.0%
$174
8

tangible Asset Write-Up:

rchase Price to Allocate:
Allocated to Intangibles:
tangibles Write-Up Amount:
mortization Period (Years):

$36,209
20.0%
$7,242
5

ew Deferred Tax Liability:

$2,225

ller - Financial Profile

luted Shares Outstanding:

luted Equity Value:
terprise Value:

Research in Motion Limited

$62.91
572,951
$36,044
$33,547
28%

ller - Income Statement

ost of Goods Sold:

Gross Profit:

perating Expenses:

FY 2010E
$17,231
$9,755
$7,476

FY 2011E
$20,868
$11,869
$9,000

$2,698

$3,259

Depreciation of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:

$431
$359
$52

$563
$433
$63

perating Income:
nterest Income / (Expense):
e-Tax Income:
come Tax Provision:

$3,937
$25
$3,962
$1,148

$4,682
$33
$4,714
$1,343

$2,814

$3,371

$5.03
560,000

$6.02
560,000

rnings Per Share (EPS):

luted Shares Outstanding:

Expense Synergies:

nergies % Seller OpEx:

ergies % Seller Revenue:

Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Share Price:
Offer Price Per Share:

Research in Motion Limited

$62.91
$75.00
Tax Rate:

Current Share Price:

Basic Shares Outstanding:
Basic Equity Value:
Diluted Shares Outstanding:
Diluted Equity Value:
Less: Cash & Investments
Plus: Debt
Plus: Minority Interest
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:

568,900
$35,789
572,951
$36,044
$2,498
$0
$0
$0
$0
$33,547

28%

Purchase Price:
Basic Shares Outstanding:
Basic Equity Value:
Diluted Shares Outstanding:
Diluted Equity Value:
Less: Cash & Investments
Plus: Debt
Plus: Minority Interest
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:

568,900
$42,668
573,986
$43,049
$2,498
$0
$0
$0
$0
$40,551

Balance Sheets - Buyer, Seller & Combined

Assets:
Current Assets:
Cash & Short-Term Securities:
Accounts Receivable:
Inventory:
Deferred Tax Assets:
Other Current Assets:
Total Current Assets:
Long-Term Assets:

Buyer
$32,841
$3,361
$455
$4
$3,140
$39,801

Seller
$1,664
$2,613
$573
$176
$190
$5,215

Adjustments

Long-Term Securities:
Plants, Property & Equipment:
Goodwill:
Other Intangible Assets:
Other Assets:
Total Assets:

$2,554
$2,839
$207
$354
$2,011
$47,766

$834
$1,737
$147
$1,291
$0
$9,224

Liabilities & Shareholders' Equity:

Current Liabilities:
Accounts Payable:
Accrued Expenses:
Deferred Revenue:
Total Current Liabilities:

$5,601
$3,852
$2,053
$11,506

$496
$1,604
$67
$2,167

Long-Term Liabilities:
Deferred Revenue:
Long-Term Debt:
Deferred Income Tax Liability:
Other Long-Term Liabilities:
Total Liabilities:

$853
$0
$0
$3,502
$15,861

$0
$0
$43
$28
$2,238

Shareholders' Equity:
Common Stock:
Additional Paid-In Capital:
Treasury Stock:
Retained Earnings:
Accumulated Other Comprehensive Income:
Total Shareholders' Equity:

$7,177
$1,185
$0
$23,364
$179
$31,905

$2,236
$139
($45)
$4,664
($8)
$6,987

Total Liabilities & SE:

$47,766

$9,224

Options Calculations - Current Price:

Name
Tranche A
Tranche B
Total

Number
10,470

Exercise
Price
$38.57

Dilution
4,051
4,051

Options Calculations - Purchase Price:

Name
Tranche A
Tranche B
Total

Adjustments
($14,350)
$0
$0
$0
$0
($14,350)

Number
10,470

Exercise
Price
$38.57

Dilution
5,086
5,086

Combined
$20,156
$5,974
$1,028
$180
$3,330
$30,667

$0
$174
$30,828
$7,242
$0
$23,894

$3,388
$4,750
$31,182
$8,887
$2,011
$80,884

$0
$0
$0
$0

$6,097
$5,456
$2,120
$13,673

$0
$14,350
$2,181
$0
$16,531

$853
$14,350
$2,225
$3,530
$34,630

($2,236)
$14,211
$45
($4,664)
$8
$7,363

$7,177
$15,535
$0
$23,364
$179
$46,255

$23,894

$80,884